Functions of Money

Functions of Money
Money as already said, removed the inconveniences of barter and showed the world the path of economic activity and development. As the economy grew, importance of money also increased. In today's world money performs variety of vital functions which are described below.
Primary Functions
Primary functions are those which are performed by money on account of its major characteristics. These are as follows:
1. Medium of Exchange
Money serves as a medium of exchange. It is used to make payments for goods and services. Goods can be bought and sold in term of money without any difficulty. So it is a medium that helps buyers and sellers to complete their transactions.
2. Standard of Value
Money serves as a standard of value. The goods and services of modern world are priced and valued in terms of money. This has greatly helped in reducing the time and effort to make transaction. Money measures values of everything (except that of life, love, care, passion, honour and some other things of same kind) in the same way as kg is used to measure weight, km is used to measure distance.
3. Store of Value
Money is also the store of value. It can be saved for use in future. In the form of money, purchasing power can be stored to buy goods in future, however this function of money is normally effected by the rate of inflation prevailing in the economy.
4. Standard of Deferred Payment
Money is a standard of deferred payment. It is used to express debt and business obligations. Goods are normally bought and sold on credit and the credit is expressed in term of money.
Secondary Functions:
Besides the primary functions, money also performs different secondary functions. Such functions depict the role that money plays in the economy.
5. Market Mechanism:
Money is at the base of market mechanism. In other words market mechanism and the forces of demand and supply works only because of money. Money is the factor that leads to the meeting of demand and supply and determination of prices.
6. Income and Consumption:
All economic variable including income-and consumption are determined and quoted in terms of money. Money helps in determination, valuation and budgeting of expenses and revenues.
7. Instrument of Modern Economy:
Money is the basic and most important instruments of modem economy. All the economic policies are applicable only because of the fact that it is possible to state the price of everything in term of money.
8. Monetary and Fiscal Management:
Money is an important element of monetary and fiscal policies of government. It plays its role in all kinds of economic actions taken by government. In fact taxes and public finance can only be generated because money is present in our economy.
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9. Aids to Economic Activities
All kinds of economic activities such as investments, savings, credit, advances, purchases, sales are made in term of money. It has facilitated the process of expansion of trade and commerce. It has acted as a lubricant in the economy. It is a driving force of economic indicators . It has made business and trading operations, flexible.
10. Specialisation and Trade
Money has made specialisation possible. Previously, there was a concept of self sufficiency. But in today's world, nations tend to specialise in the production of things in which they have comparative advantage and then they trade what they have produced for what they need. This is possible because different resources can be priced in terms of money. This helps in the calculation of cost of production and the determination of comparative advantages.
11. Liquidity to International Trade
Money has provided the liquidity to international trade. The wealth can be transferred readily from one country to another. Payment can be made and received on the other end of world in no time. Bank money has made the, international trade more brisk and much more secure. It has also simplified the task of accumulation of reserves by the governments. Besides accumulating gold and silver governments also hold foreign exchange(currency of stronger countries) as reserves.